Home Depot Says 401(k) Plan Members Can’t Prove Fault

As It Appeared On

By Matthew Guarnaccia

Law360 (August 28, 2018, 6:34 PM EDT) — Home Depot and related entities on Monday asked a Georgia federal judge to throw out a lawsuit by current and former employees over the alleged mismanagement of its 401(k) plan, arguing that they fail to show how the underperformance of offered investment options and associated losses were the retail giant’s fault.

Home Depot Inc., along with two committees that oversaw the plan, asked U.S. District Judge Leigh Martin May to dismiss the employees’ lawsuit, saying the complaint only contains after-the-fact allegations that other plan options performed better than four funds selected for plan participants. Simply stating that other funds did better over a particular period does not show that Home Depot violated its duty of prudence under the Employee Retirement Income Security Act, the retailer said.

In addition, the employees do not provide data from the funds in the Home Depot plan, or information regarding the performance of similarly situated funds that would demonstrate the underperformance of the options selected by Home Depot, the retailer argued.

“The claims that plaintiffs seek to bring against the Home Depot defendants — heavy on criticisms about outcomes, but light on concrete factual allegations about how defendants behaved imprudently or disloyally — could be leveled against any 401(k) plan fiduciaries whose plan fails to provide the best investment results over a given period of time,” it said.

Home Depot also hit back at assertions by the employees that it breached its duties by allowing plan participants to use the investment advisory services of co-defendants Financial Engines Advisors LLC and Alight Financial Advisors LLC. While Financial Engines and Alight Financial allegedly charged more for their so-called robo-adviser services compared to other companies, Home Depot said the process for selecting the two businesses was fair and reasonable, and that the plan participants failed to show how the charges were imprudent under ERISA.

In two other motions filed Monday, Financial Engines and Alight Financial asked Judge May to dismiss the claims against them.

For its part, Financial Engines asserts that the employees’ complaint unsuccessfully tried to reframe a claim that the adviser’s fees were too high by instead contending that the work performed was insufficient. While the employees alleged that Financial Engines put plan participants on hold for too long or took other frustrating actions, these have to do with customer service and don’t demonstrate a breach of fiduciary duty, the adviser said.

Alight Financial, meanwhile, said the employees do nothing but claim that the company provided services as requested in exchange for compensation agreed to by the plan’s fiduciaries. The company took an approach similar to Financial Engines’ in its motion to dismiss, contending that the employees cannot substantiate a fiduciary duty claim using allegations of poor customer service.

Counsel for the employees, Charles Field of Sanford Heisler Sharp LLP, told Law360 Tuesday that they are reviewing the dismissal motions.

“We believe the complaint speaks for itself and alleges sufficient facts to justify how Home Depot, Financial Engines and Alight breached their fiduciary duties to participants of the Home Depot plan,” Field said.

Counsel for Home Depot and Alight Financial declined to comment Tuesday. Counsel for Financial Engines did not immediately respond to requests for comment.

The defendants are seeking to end a lawsuit launched in April by plan participants Jaime Pizarro and Craig Smith, who accuse Home Depot of using advisers that gobbled up 1.5 percent of workers’ investments each year, and that the retailer selected funds whose “abysmal” performance should have warned it to stay away. Pointing to information from financial information company BrightScope, the employees say the average plan participant earned $100,000 less in retirement savings than those in more successful similarly sized plans.

An amended complaint in July added six new named plaintiffs to the case and two new claims, while adjusting several others. Home Depot and its related entities now face three claims by the plan participants, while Alight Financial and Financial Engines face two each.

Two of the claims against Home Depot and one each against Alight Financial and Financial Engines allege violations of ERISA. Alight Financial and Financial Engines are named together in a claim for prohibited transactions based on compensation arrangements, while Home Depot faces an additional claim for failure to monitor the performance of Alight Financial and Financial Engines.

Sanford Heisler Sharp, LLP is a public interest law firm representing individuals and groups against corporations and governmental entities. The firm also represents individual citizens when a corporation is committing an act of fraud against the U.S. Government. As a private attorney general, Sanford Heisler Sharp, LLP specializes in a number of areas: employment discrimination, Title VII, ERISA, and wage and hour cases; representation of executives and attorneys; qui tam and whistleblower matters; consumer fraud; housing discrimination; mass torts; complex civil litigation; and, appellate litigation.